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Lehman Brothers goes down, entire western global economy in chaos

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To anybody who’s been paying much attention to the international banking system over recent years, the spectacular failure of Lehman Brothers should come as no surprise. What is surprising, however, is that the US government didn’t step in to save the massive investment bank which, up until yesterday, most people would have imagined enjoyed the status of ‘too big to fail’ like many other privileged financial services organisations.

Not to put too fine a point on it, this must be causing a lot of soiled underwear in the boardrooms of Wall Street and beyond – if the government is prepared to allow a beast the size of Lehman Bros to collapse, nobody is safe. And given that the entire banking system currently seems to be circling the drain, there’s certain to be more than a few other big financial services companies, both in the US and the rest of the world, that are now facing a bleak (and possibly very short) future without the guarantee of government bailouts.

While it’s a lot of fun to watch the colour drain from city-boys’ faces as they try to get their heads around the simple fact that their party is over, the sad thing is that it’s not just the arrogant, overpaid money-monkeys who will pay the inevitable price for their insatiable greed. A bank the size of Lehman Bros won’t collapse without causing some serious waves, and even though there won’t be any bailout paid for by the American taxpayer, the impact this epic failure will have on banks and their customers will certainly be felt around the world.

The credit crunch is about to get a lot crunchier – this won’t be over quickly and painlessly.

  1. Yep, very true. Whilst in some ways I admire the US Treasury for taking a stand (or perhaps they simply couldn’t afford to prop it up), we will probably all suffer.

    I’ve written some thoughts on whether our Treasury would have the guts to do a similar thing:

    http://money-watch.co.uk/4236/further-bank-bail-outs